Mixed Signals

研报英文原文证据摘录

Mixed Signals

Goldman Sachs Mortgage & Structured Products Trader

Agency MBS

Warsh addresses Fed’s balance sheet: Low probability of active MBS sales, but

watch task force recommendations

Since Fed Chairman Warsh was nominated, the MBS market has focused on whether the

Fed would sell MBS to accelerate the pace of balance sheet reduction. Earlier this week,

Chairman Warsh appeared for his first semiannual Humphrey-Hawkins testimony.

Among other questions, he was asked about his intent to shrink the size of the Fed’s

balance sheet. Chairman Warsh said he preferred to keep the balance sheet “as small as

practicable,” while allowing it to expand during a crisis or when an institution needs

liquidity. He also noted that the task force set up to review balance sheet policy could

provide early indications on their recommendations to the FOMC by September, with

final conclusions likely by December. The members of the FOMC would then make their

final decision. The Chairman also noted that if there was going to be a change in the

balance sheet policy, the Fed would provide sufficient advance notice to the financial

markets before implementation. This should reduce the near-term risk for the MBS

market, but investors should continue to monitor headlines. Any proposed changes

could target both the size and duration of the Fed’s balance sheet.

Convincing the FOMC to aggressively shrink the size of the balance sheet could be

difficult, especially because they just affirmed their commitment to the ample reserve

framework in the June FOMC meeting statement. To be fair, some reduction in the size of

the Fed’s balance sheet may be achievable over the medium term if changes to bank

regulations reduce their demand for reserves, as our economists have noted (Exhibit 1).